Many Biotechs Choose Reverse Mergers

 

 

“Lingering unease from the recent financing downturn is leading more biotechnology startups to go public by "reverse merging" with a public company.

 

In a reverse merger, a private company combines with a public one and the startup's investors become the majority shareholders of the new, combined business. Usually, a public company agrees to it because it has suffered a severe setback, such as a failed clinical trial, and has little hope of recovery on its own.

 

These days, biotech reverse mergers usually involve a concurrent financing to support the company.

 

Biotechs struck 11 reverse-merger deals in the year's first half, compared with five in all of 2025, according to investment bank William Blair.

 

Not long ago, reverse mergers were stigmatized as two weak players leaning on each other.

 

Startups resorted to them when the initial public offering market was frozen. Now, reverse mergers are rising even as IPOs rev up. Fourteen biotechs staged IPOs in the first half, up from eight in all of 2025, according to William Blair.

 

Entrepreneurs and investors are changing their view of reverse mergers as market dynamics burnish their appeal.

 

Several biotechs that went public during the pandemic have since flopped and are ready to consider them.

 

 Startups, for their part, often find they can raise as much through a reverse merger as they could through an IPO, and from the same marquee investors.

 

And while the biotech financing market is rallying, the recent downturn remains fresh in mind and startups are exploring as many options as they can.

 

"Companies these days are pursuing all opportunities to fund their programs, and reverse mergers are one of the options in their tool kit," said Jennifer Fang, a partner with law firm Wilson Sonsini Goodrich & Rosati.

 

The high caliber of some startups agreeing to reverse mergers has raised these deals' profile. In March, Candid Therapeutics, a venture-backed developer of T-cell-engager treatments for autoimmune and inflammatory diseases [1], agreed to combine with publicly traded biotech Rallybio, a deal that included a more than $505 million concurrent financing.

 

A hot target, Candid in May agreed to instead be acquired by drugmaker UCB for up to $2.2 billion. The acquisition closed in June.

 

As Candid walked away, another startup pounced. Avenzo Therapeutics and Rallybio disclosed a reverse-merger agreement and concurrent $215 million financing on June 1.

 

Competition for biotech reverse mergers is intensifying because the supply of companies amenable to them is diminishing as more deals get done, industry observers said.

 

As biotech emerges from the uncertainty of the postpandemic slump, startups seek clarity about the amount they can raise and at what valuation. That is part of reverse mergers' appeal.

 

In an IPO, the price and number of shares sold can shift. Biotechs conducting reverse mergers, by contrast, negotiate the concurrent financing and valuation up front.

 

There are potential drawbacks. Companies meet dozens of investors through the roadshow before an IPO, generally more than they would through a reverse merger and concurrent financing, which is typically raised from a smaller group of investors, observers said.

 

The IPO roadshow generates a large pool of potential backers who are educated about the company. Even if they don't join the IPO, they could choose to invest later, said David Nierengarten, managing director and co-head of healthcare equity research for financial-services firm Wedbush Securities.

 

Some successful executives say their relationships will help them rapidly draw new investors and equity research analysts to their company once they complete their reverse-merger deal.

 

Startup Avere Therapeutics earlier this month agreed to a reverse merger with publicly traded NextCure and a concurrent $320 million investment. Previously, members of Avere's executive team worked for Akero Therapeutics, which drugmaker Novo Nordisk acquired in December for up to $5.2 billion.

 

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Brian Gormley writes for WSJ Pro Venture Capital.” [2]

 

1. T-cell-engagers (TCEs) are an emerging class of T cell engagers emerge as a compelling therapeutic modality immunotherapies Bispecific T-cell engagers in autoimmune diseases: mechanisms  that redirect a patient's own T cells to destroy specific pathogenic cells. Key agents being studied include blinatumomab (targeting CD19) and teclistamab (targeting BCMA), which show promise in treating severe autoimmune and inflammatory conditions.

Mechanisms and Targets

•           CD19-CD3 Binding: Blinatumomab targets a broad range of B-cell stages, including antibody-producing plasmablasts.

•           BCMA-CD3 Binding: Teclistamab focuses on mature plasma cells to stop stubborn autoantibody production.

•           Deep Depletion: They offer deep immune cell removal inside tissues, similar to cellular therapies like CAR T-cell therapy but with off-the-shelf biologic availability.

Conditions and Clinical Evidence

•           Connective Tissue Diseases: Early studies and compassionate use cases report clinical improvements in treatment-refractory systemic sclerosis and antisynthetase syndrome.

•           Rheumatic and Systemic Disorders: Ongoing research explores use in severe systemic lupus erythematosus, rheumatoid arthritis, and Sjögren's disease.

•           Remission Potential: Initial findings demonstrate periods of drug-free clinical remission and lowered autoantibody levels.

Safety and Challenges

•           Cytokine Release Syndrome (CRS): Initial doses frequently trigger immune activation side effects like CRS, which are managed using steroids or tocilizumab.

•           Infections: Profound immune cell reduction can lead to temporary hypogammaglobulinemia and a higher risk of infections.

•           Access Limitations: Most applications outside of oncology trials remain experimental until formal clinical trials and approvals for autoimmune indications are completed.

 

2. Many Biotechs Choose Reverse Mergers. Gormley, Brian.  Wall Street Journal, Eastern edition; New York, N.Y.. 28 July 2026: B4.